Magna International Inc. (MG)

In today’s content analysis (Download), we will discuss Magna International Inc which has been in our Canadian model portfolio since December 31, 2012. There has been a lot in the news lately concerning the family dispute which has brought a lot of negative attention to this company, however, the auto parts giant Magna’s operations prove strength and continuity. Magna is the largest automotive parts manufacturer in North America by sales of original equipment parts and one of Canada’s largest companies, having garnered a spot in the S&P/TSX 60. Magna operates under Magna Steyr, Magna Powertrain, Magna Exteriors, Magna Seating, Magna Closures. Magna Mirrors, Magna Electronics and Cosma International.

Q3 2018 Earnings Release

On November 9th, Magna delivered third quarter earnings per share of $1.56, versus $1.39 during the same period a year ago. Analysts had forecasted $1.49. Revenues for the company totaled $9.6 billion higher again then last years revenues of $8.9 billion but lower then analyst’s expectations of $9.8 billion. EBIT declined from 705 million to 699 million. Magna reduced their forward guidance expecting total sales of $40.3B – 41.4B and profits of $2.3B – 2.4B. Down from their earlier estimates of sales of $40.3B – 42.5B and profits of $2.3B – 2.5B. All business segments of Magna experienced growth in sales

EVA Analysis

As of November 16th2018, Magna, had one of our highest EVA scores of 72 indicating that it is currently a quality company at a great value. MG is trading well below the Intrinsic Value. Trading at approximately half of its intrinsic value. The Future growth value (FGV) is another representation of whether the stock is trading at a discount of premium by comparing the market value to the current operating value. In the case of Magna, it is currently trading at a 29% discount.

Magna has constantly increased their year over year net operating profits after tax (NOPAT) by an average of 10%. We can also see that the return on capital has been increasing steadily since 2016 and so has the cost of capital. This resulted in a slight decrease in the performance spread from 1.64 to 1.60.

The EVA (TTM) graph is an important indicator of future performance and sustainability of the company. We can see that the EVA has been almost flat because even thought the profits increased, so did the capital charge, hence, flattening out the overall EVA trend.

Magna has had quite an aggressive share buyback decreasing the outstanding shares on average of 5.2% per year which is helping increase the intrinsic value per share.